Pittsburgh Blazes The Way, Again, in Reverse Auctions: How Municipal Governments are Saving Millions of Taxpayer Dollars on Their Energy Purchases Through Introducing Reverse Auction-based Competition Among Power Suppliers

The Pittsburgh-area has been a hotbed of reverse auction activity over the years. A decade ago, FreeMarkets grew fast to become the market leader in bringing reverse auctions into prominence in business-to-business and business-to-government procurements. Today, we are seeing the results of an exciting partnership between governments across the Pittsburgh region – working with a private-sector reverse auction provider, Co-exprise (http://www.co-exprise.com/), based in nearby Wexford, Pennsylvania. 

The Western Pennsylvania Energy Aggregation Program has already produced multi-million dollar savings for taxpayers through the use of reverse auctions for utility procurements for governmental agencies in the area – with promises for much more in the future. This innovative effort, initiated in 2007, first began with an effort to aggregate electricity purchases for governments in the Pittsburgh area in the wake of deregulation in Pennsylvania’s electricity market statewide. With the structure of the partnership, there was very little risk for the governments involved, as the fees for the program are borne not by the public agencies, but rather they are paid for by the successful suppliers. In 2008, the initial bulk-purchase of electricity capacity – conducted using an electronic reverse auction where competitors anonymously bid down the price at which they would supply the kilowatt hours needed by the various agencies – produced a savings of $1.4 million dollars over the expected price level, based on current market conditions and historical buys. Co-exprise Chief Executive Officer Bill Blair commented that the result of the initial energy auction “was a powerful display of strategic sourcing processes coupled with next generation technology deployed to assist public and private entities in achieving best market price for their electricity contracts.”

Just last month (May 2010), the second procurement auction for aggregated governmental electrical needs was conducted. This event produced – for a combined 30 million kilowatt hours of electricity – shaved more than a full penny (6.54 cents per kilowatt hour versus 7.75 cents) that the winning bidder, Duquesne Light Energy, normally charged its municipal customers. For the City of Pittsburgh alone, this means the municipal government saved residents over $1 million dollars over the next three years through this single acquisition! And for even the smallest of participating governmental agencies, the savings can be of critical importance. Take for instance the Borough of Wilkinsburg, PA. It will save $7,600 a year under the reverse auction negotiated energy contract. As Borough Manager Marla Marcinko recently commented, while not Pittsburgh-level savings, for her community, these thousands of dollars a year are critical, as she observed:  “I wish we could do this every day. Every little bit helps.”